Dear Father in heaven, I'm not a praying man, but if you're up there and you can hear me [begins crying] show me the way ... show me the way. -- George Bailey, It´s A Wonderful Life --

George Bailey, enlightened good ol` boy, Mr. Community Spirit and defender of truth, justice and the American Way -- how dare anybody suggest he could be among the perpetrators of The Crime of The Century.

I agree -- the suggestion is wrong. If the world economic recession on 2007-8 is any indication, it could be The Crime of The Millennium.

There is only one good thing about house flipping. There is a cure for it.

To understand the cure requires that a few basic assumptions be expressed.

Real Versus Unreal Estate

1. The real value of a house or other building is its replacement cost. If it burned down or was towed away, how much would it cost to build another one just like it today?

The fact that Robert Redford bought a house down the road means nothing. Any value he adds is unreal estate, not real estate. That fact will become evident the moment he sells; the unreal estate value will vanish along with Robert Redford. The real estate value, however, will remain, unglamorous but unscathed.

2. To determine the real value of land, start with population. Is it growing or declining? In my town, the population increased over 45% from 1970-2010. Sounds like a lot. However, the U.S. population grew from 203 million to 315 million over the same period -- or 55%. Prima facie, then, there is no reason for my town´s land to reach stratospheric prices relative to those of the rest of the country.

Population is the starting line -- not the finish line -- for calculating the real value of land. So fundamental is this point that house flippers blew a gasket when I noted in an interview with the local newspaper that the vast majority of housing starts in my town belonged to people who were already living there. The flippers were using starts as a "scientific indicator" to "prove" that everybody and his brother was moving to our area -- ergo, Hurry! URGENT!! Buy now!!! RUN, RUN, RUN!!!!

3. If you want to make money in real estate, as opposed to unreal estate, don`t follow movie stars. Instead, follow artists. They buy cheap property and fix it up. They beautify -- as opposed to prettify. Improvements of that nature are real improvements -- not retinal junk food -- hence worth real money. To repeat: that Robert Redford bought a house down the road is not an improvement, contrary to what every house flipper will tell you. Stop listening to the chaos whisperer.

Stop being the Bigger Fool.

4. Only unreal estate, versus real estate, has bubbles. The answer, my friend, is not blowing in the wind.

5. Finally, anybody who has ever bought or sold property knows there are few things more ritualistic than a real estate transaction. The reason: it is not always easy to separate real estate from unreal estate.

If you´re up there and you can hear me ... George Bailey´s anguish is still palpable. And no wonder: as far as anybody can determine, God doesn´t believe in real estate.Neither do little children.

* * * The Cure For House Flipping

Well whaddya know about that!!! -- George Bailey --

As noted, population growth is what ultimately causes property values to rise. That fact is the basis for the following political position:

Population = society. Discounting renovations/repairs -- which the house flipper by definition does not make -- society causes property values to rise. Therefore, society is entitled to -- among other things -- the lion´s share of the profits brewed by house flipping.

We have rejected the term speculationin this discussion. The defining characteristic of speculation is significant risk. Risk motivates the speculator, but it de-motivates the house flipper. Indeed, risk terrifies the house flipper. Terror is why he flips -- sells as fast as he can -- in the first place.

We just saw the flipper´s Achilles´ heel.

The horror of risk is why the mere mention by government officials of the cure presented below -- that it is being "studied," "considered" -- would blow house flipping out of the water in a matter of days -- maybe hours. The house flipper will flip out.The chaos whisperer will be silenced.

House flipping consists of two fronts:

(1) the time period. The shorter the better.

(2) The amount of money must be big. The flipper isn´t going to worry about how to save three cents on a length of pipe. He could care less about making a 100% profit if his final take is a pipsqueak $500.

The cure is a special tax that attacks flipping on both fronts.

(1) The time period. If my house has been in the family for 30 years and I sell it, house flipping is not involved, consequently, neither is a flip tax. If, on the other hand, I buy a house and sell it the next day for a $100 K profit, house flipping occurred. I should have to pay a steep tax, e.g., 90% for less than 90 days separating purchase from sale. In this case, $90,000 would go to cash-starved state, county and/or city coffers to hire more teachers and nurses, to buy a new fire truck, to replace the street lamp the kids shot out. I would keep $10,000 -- not bad for a day´s UNwork.

The longer the time between purchase and sale, the less flip tax would apply. After a specified period the flip tax would disappear.

Which specific tax rates would apply for particular time frames? And when should a flip tax expire? Those questions must be resolved -- at least initially -- at the state and local levels.

Why must? Well, because there is no alternative ...

Unreal estate is a pillar of the oligarchic political system that seized control of America in 2007-8. As representatives of that system, no congress will pass a flip tax; no president will sign it.

Actually, it may be a good thing that Washington is for the time being a total waste of time. Local conditions and circumstances pertaining to property vary greatly. Numerous experiences with different flip taxes would provide a concrete basis for designing an eventual federal flip tax that is relevant and coherent.

We need to be just as realistic about something else. The conquest that is forced to wait dies. House flippers know it, which is why they will fight the creation and imposition of a flip tax with every fiber of their being.2. The amount of money. Let´s start by looking at how to avoid an injustice that the best-intentioned flip tax could cause.

Property bought and sold quickly for little or no profit would be exempt from a flip tax. Assume a poor farmer bought land and died a week later, and that his family had to sell the property immediately and for a minuscule profit to pay off his debts. There is no reason why they should be punished for flippers´ abuses.

What minimum profit threshold should be required for a flip tax to kick in? Again, specific amounts would be locally determined.

Another key consideration regarding the amount of money:improvements and repairs weigh in. The house flipper in the purest sense engages in neither.

An illustration: assume two people, A and B, separately purchase houses for $200 K. Four months later, each sells and turns a $100 K profit. If A made $40 K in improvements whereas B made none, A would pay less flip tax. Why worry about renovations/repairs? Why not simply leave them to the buyer?

The problem is, the buyer could turn out to be another flipper. If so, renovations/repairs are put off again and again, and the property deteriorates. In my town there are stacks of condos that have never been inhabited except by venomous centipedes and plague-carrying carnivorous mice.

Look around at the eye sores in your area. Public policy should encourage -- not discourage -- renovations/repairs. A properly worded flip tax is a powerful incentive. Roofing, painting, landscaping and tile contractors -- take note.

A good flip tax would do something else. To the extent the house flipper makes renovations/repairs, the house flipper per se ceases to exist. He becomes something else.Two other issues must be addressed in considering a flip tax:

4. Wherever there are weasels, there are weasel holes. Designing a flip tax requires plugging up the holes that inevitably appear in laws and regulations where megabucks are at stake. Playing games with the legal dates of a sale and/or purchase is a case in point. Side deals -- on paper I sell you my house for no profit but you slip me cash in a dark alley -- are another.

5. To make a flip tax meaningful, severe penalties must be applied. The possibilities run the gamut from fines and imprisonment to confiscation of property.

* * *

When all is said and done, society pays itself in the false money of its dreams. -- Marcel Mauss, Esquisse d’une théorie générale de la magie* --For millions of Americans, house trafficking has proven to be the worst possible outlet for laundering billions of narco dollars. Specifically, flipping pushes housing evaluations to astronomical heights beyond the reach of middle income families. As our prior post observed:

It is not easy to get a handle on the damage which the post-2006 housing crisis inflicted on the middle class as distinguished from the other two classes. However, a highly probative clue is found in net worth (total assets minus deficits). The Pew Research Center concluded in August 2012 in an aptly-titled study, The Lost Decade of The Middle Class: "Net worth of middle-income families dropped 39% ... [from $129,582 in 2001 to $93,150 in 2010] as the housing market crash and Great Recession wiped out the previous advances. Over the 1983 to 2010 period, only upper-income families registered strong increases in wealth."

So, why don´t middle class house buyers just say no to absurdly bloated prices? After all, nobody is forcing them to buy houses.Or are they?

The dream of middle class Americans to own their home is highly inelastic -- meaning they will pay almost any price to buy a house. The proof is that from 2007-2012,10 million familiestried to pay it. Result: they were -- or are about to be -- tossed in the street.

In the end, that inelastic demand is what makes house trafficking possible.Here, a primordial contradiction wells to the surface:

As long as house flipping is real, the American Dream will never be realized by millions of people. Either (i) a home of their own now or (ii) continue to allow flipping with its possibility ofa never-specified amount of free money in an unspecified future. The latter option is the chaos whisperer; we didn´t call it such for nothing.

So, door (i) or door (ii)? The huge number of Bigger Fools shows which option Americans are choosing. That reality is why house flippers need not worry about a single word said here. They can and will sleep peacefully in their palaces. The flippers knowthatunreal estate is an untouchable totem, that what they do is a pillar of the oligarchic political system running and ruining America.

You disagree, Dear Reader, that house flipping is a centerpiece of the new order?You might want to wonder why there is no flip tax anywhere on the planet. China, Australia, Hong Kong, Singapore all have taxes on speculation but not flipping (see above).As far as I can determine after a search far and wide on the Internet,Austria´s speculation tax comes closest to a flip tax.

You might also wonder about your local oligarch´s responses to our version of the Rotary Club´s 4-Way Test:

(i) Ask him what he thinks of drug trafficking.(ii) Sit back and watch him pound on the desk, foam at the mouth.(iii) Next, ask him if he favors stopping a major venue for laundering drug money -- house flipping -- via a special tax.(v) Again, sit back. You will be treated to a classic display of The Red Neck Shuffle. "Ah, well..."To repeat, no flip tax is possible today on a national level in America. Unfortunately, in the long run that is where it is needed. Until a federal flip tax exists, flippers will simply travel from state to state, community to community, wherever rates of profit are higher and corruption of local officials is easier. I saw it happen in my town. Don´t wait to see it in yours.

A federal flip tax awaits The Third American Revolution. That revolution will be the renaissance of the polity with a greatly enhanced democratic component (see this blog, The Big Movida: The Third American Revolution).

* * *

"It´s A Wonderful Life" was released in 1946, when America still had a polity, i.e., the oligarchy/democracy hybrid moderated by a large middle class, which the Founding Fathers created in 1789. The polity was destroyed by the Second American Revolution (2007-8), which installed an oligarchic political system via a financial coup d´etat. The mega-rich stepped out from behind the curtain, demanded and received in the full light of TV cameras, billions of public dollars.

That coup created a change of -- not in -- systems. That historic transformation of context is what makes Frank Capra´s film today so misleading, if not a lie.

The long and short of it:

"It´s ä Wonderful Life" needs to be dethroned as America´s most inspiring movie.** Because house flipping is El Dorado for gringos, we will believe it when we see it.

Until new and tragic economic realities force needed changes in America´s values and political system, here is what you can do: Stop worrying about the college kid smoking a joint. Start worrying about your pal, neighbor and implacable Main Streeter, George Bailey.***

He almost brought the house down.

THE END_______________

* « En définitive, c’est toujours la société qui se paie elle-même de la fausse monnaie de son rêve. » Marcel Mauss, Esquisse d’une théorie générale de la magie, in Marcel Mauss, Sociologie et anthropologie, Presses Universitaires de France, Paris, 2004, p. 119. [My translation] **We are not suggesting that "It´s A Wonderful Life" is inherently evil and should disappear forever. Paradoxically, another change in context -- notably the Third American Revolution with its empowered democratic component -- could give the movie a renewed, positive value.***Not all realtors and S&Ls are house flippers. However, somebody has to sign off on flippers´ deals.

Jimmy Stewart as George Bailey, facing a run on his Building & Loan Association. "It`s A Wonderful Life." Source: fanpop.com.

You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his slums and paying the kind of rent he decides . .. Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments. You didn't lose your house, did you? Do you think Potter would have let you keep it? Can't you understand what's happening here? ... Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains. -- George Bailey --

My -- how times have changed since 1946, when It`s A Wonderful Life was released.

You didn`t lose your house, did you? Put that question to millions of families who were tossed into the street, 2007-2012.

Sure, your savings (assuming you have some) are still in Joe`s house, but they are also in other places -- credit default swaps, derivatives -- which are less savory and too fancy for their own good.

Come to think of it, these days Joe`s house isn`t so savory. There is other money in there than your savings -- in fact, megabucks if Joe`s place is being flipped. More on this subject below.

As for mean old Mr. Potter, he´s still around -- more fat, dumb and happy than when George Bailey faced him.

In fact, George Bailey and Mr. Potter no longer co-exist. Mr. Potter won. George Bailey is dead.

The metaphor is more than a metaphor. In 2007-8, America underwent a second revolution. The polity, i.e., the oligarchy/democracy hybrid moderated by a large middle class, which was created by the Founding Fathers in 1789, was destroyed. The polity was replaced by an oligarchy with democratic accessories -- hats, gloves. (For more on this subject, see this blog, The Big Movida: The Third American Revolution, Chapter 9).

In other words, Palindrome Bob and Megabucks Mary (see prior post) are in the driver´s seat. So, where are they taking you?

Answer: exactly where they are right now. * * *At the outset of this series we declared there is a more serious crime than drug trafficking. We also said we would amend that statement. Its problem is that it assumes two things are separate and distinct when they are not.

House flipping launders and folds millions of narco dollars daily -- perhaps hourly. At the same time, flipping creates a consumption fund to buy cocaine and narcotics at outlandish prices. Want to try cocaine? Try $200 for one night´s entertainment. Heroine? Hard core addicts pay $150-$200 per day.

Under the Fourth Reich now ruling America, economic sectors and functions, e.g., secondary and tertiary (goods and services), which once were separate and distinct, are being inextricably intermingled, coalesced. Drug and house trafficking are no exception. To separate them is a task comparable to unscrambling scrambled eggs.

And a real estate -- make that unreal estate -- office. Flipper Maximus, UNman ended up owning a huge chunk of downtown. No sooner was the ink dry than he raised the rents, driving out small businesses that had formed community landmarks for over half a century. I watched the takeover: George Bailey´s Building and Loan wouldn`t have stood a chance.

The miraculous transformation of UNman beats the marvelous makeover of Lance Armstrong any day. There were -- still are -- rumors. A trip or two to Mexico. Or was it Colombia.

A woman who worked for him told me he sits around all day and talks about how stupid everybody is. His kids are like his dogs: untrained. Other than being supersized, his house´s most prominent feature is unflushed toilets.

What it comes down to:

UNman is still a stranger -- even to himself.

* * *

I know the following observation will offend many readers who believe crime doesn´t pay. I apologize.However ...

Drug traffickers today are engaged in the same primitive accumulation of capital that drove America to its economic heights in the twentieth century. You disagree? Look up Andrew Carnegie, Cornelius Vanderbilt and other 1800s robber barons who were magically transformed with time into wholesome "captains of industry" and patron saints of universities and public libraries.

The primitive accumulation of capital via criminal activity is a fundamental process in the full sense of the word.* It is what makes little league capitalism big league capitalism.

Those shared roots of American oligarchs and South American narcotraficantes are the basis for the following prediction:

If you live long enough you will see the grandsons and granddaughters of Mexican drug cartel capos going to the same prep schools and living in the same guarded and gated communities as Obama´s grandkids -- and nobody will say a word. The reason is the oligarchy admits one and all. Its sole requirement for membership is money. Nothing else -- family lineage, education, ability, intelligence -- matters.

Drug trafficking is a source of capital formation; house trafficking, on the other hand, creates capital deformation. House flipping clearly robs from the rich and gives to the richer.** But more significantly, house flipping creates unreal estate, thereby pushing housing evaluations beyond the reach of most Americans. Unable to make their ballooning monthly payments and to pay inflated taxes, millions of people end up losing their houses.

From 2007-2012, 4 million foreclosures occurred. 6 million more are on the brink. Undoubtedly, many if not most of those ex-home owners are middle income people.

Did we just identify the bulk of the Bigger Fools?

It is not easy to get a handle on the damage which the post-2006 housing crisis inflicted on the middle class as distinguished from the other two classes. However, a highly probative clue is found in net worth (total assets minus deficits). The Pew Research Center concluded in August 2012in an aptly-titled study, The Lost Decade of The Middle Class: "Net worth of middle-income families dropped 39% ... [from $129,582 in 2001 to $93,150 in 2010] as the housing market crash and Great Recession wiped out the previous advances. Over the 1983 to 2010 period, only upper-income families registered strong increases in wealth."

39%. Only a heavy-weight asset such as housing can account for such a great disappearing act.

Still think George Bailey, America´s favorite Good Guy and purveyor of perpetual Christmas, wouldn´t have aided and abetted the assault and battery of the middle class? I invite you to watch the 60 Minutesreport, "World of Trouble." Decide for yourself.

It is crucial to note that the 60 minutes piece and others like it bemoaning foreclosures all follow the same pattern. They lament the house buyers´ inability to make their monthly payments. However, I have yet to see a single report which investigates how the ridiculously high evaluations were derived in the first place. To do so is verboten because it puts into question a central pillar of the Fourth Reich -- house trafficking and all that goes with it: inflation, corruption, a gimme-free-money culture, in short, the whole Surf Nazi Economics School (see Part 2 of this series).

The failure to face the real cause of the millions of foreclosures is shared by the United States government. It is why Vice President Joe Biden´s middle class task force, as Biden himself admitted, is a total failure.

Permit me to belabor the what-by-now-should-be-all-too-obvious conclusion. You will never stop the middle class decline until you stop house flipping. It is just that simple. Look at those Pew net worth numbers again. And look at all those "For Sale" signs as you drive down the road.

Paradoxically, the inseparability of drug and house trafficking makes the cure proposed in the next and final part of this series all the more profound, wide-sweeping. Because drug and house trafficking are inextricably linked, attacking and weakening one necessarily attacks and weakens the other.

But where to start? Police raids and prison terms don´t work. History*** and common sense show a better way. Downtown crack dealers and uptown realtors, heroine and houses form a walking, breathing mixed metaphor. Only a mixed metaphor can portray its resolution:

House trafficking is the corner stone in the legal crimes characterizing the Fourth Reich ruling America today.

Part 1 of this series discussed how house flipping was the sine qua non of Economic Crisis II, the great world recession of 2007-8. It follows that house flipping was necessarily a major cause of The Second American Revolution inaugurated by Crisis II. That revolution put the nails in the coffin of what was in its day the envy of the world: the American polity (see above).

As with any corner stone, once set the rest follows. Equally true, however, something always precedes the corner stone, something that determines its location and direction:

As the classical economist David Ricardo observed, landowners and capitalists historically were bitter foes. The rent the capitalist paid the landowner came directly out of the capitalist´s hide. But the landowner could not charge too much, otherwise the capitalist would move on or go under. Thus, capitalists´ profits formed a built-in economic limit on property values.

In a preview of what was to come, Hitler´s Third Reich forged an alliance of big capitalists and landowners. Indeed, that arrangement remains a defining characteristic of Nazism. Under Hitler, however, the alliance was precarious and temporary because the underlying rent/capital antagonism was unchanged.

It took the United States to resolve the antagonism. In the process, America created something new in the world: the prospect of permanent Nazism. In the Fourth Reich´s merging and comingling of economic sectors and functions, the capitalists became landowners; the landowners, capitalists. Today, house flipping, which raises the perceived value of land and consequently rents, no longer cuts the profits of capitalists; on the contrary.

When all is said and done -- and it was -- who came out on top? Look around where you live and work. Vacant land is converted into housing developments and shopping centers, not the other way around. As George Bailey put it, somebody is pickng up some bargains.

As for unconverted agricultural land, they don´t call it agribusiness for nothing.

They also don´t call them robber barons for nothing.

The unprecedented melding of capitalists and landlords is the socio-economic and political basis of the chaos whisperer.That melding accounts for the foam at the heart ofsurf Nazi economics, the ideology of the Fourth Reich (Part 2) governing America today.

There is another issue involved here, however. Backwards and forwards, coming and going: the foam is simultaneously cause and effect of our post modern world. Pure process, no reality, the newly-found core of materialism turns out to be ... immaterialism incarnate.And you thought blue sky wasn´t worth anything. Bells are ringing all over the place. Looking down from on high, angel George Bailey must be flying in the aisle. Gosh, golly, gee-whiz. It´s a wonderful life.

A wonderful death, too. Funny thing about that.

* * *

Before concluding this discussion, how can the legal crimes mentioned above exist? Specifically, if house flipping is legal -- which it is -- how can it be a crime?

The traditional definition of crime: "A crime is an offence against a public law." If we go no further, the term legal crime is an oxymoron.

However, the same source proceeds to note that "from the difficulty of exactly defining and describing every act which ought to be punished, the vital and preserving principle has been adopted; that all immoral acts which tend to the prejudice of the community are punishable by courts of justice [sic]. Crimes are 'mala in se,' or bad in themselves, and these include all offences against the moral law; or they are 'mala prohibita,' bad because prohibited, as being against sound policy which, unless prohibited, would be innocent or indifferent."

In brief, crimes are crimes for two reasons: (1) they harm society by violating its vital and preserving principle, and/or (2) they are legally prohibited. A legal crime is an act that is not legally prohibited but is prejudicial to the community, i.e., against sound policy.

If capsizing the U.S. economy -- and with it the Western world -- is not against sound policy, what is?

Coming soon. "The Chaos Whisperer. Part 5: The Cure."_______________*The relationship between criminal activity and primitive capital formation is by no means limited to the United States. For an early counterpart in Latin America in the 1600s, clik on Peruleros.**Since 2008, the start of the Obama Administration, the share of the national income pie going to the wealthiest 20% of the population rose from 49.7% to 51.1% in 2011 However, the lion´s share of that increase was limited to the top 5%, which increased its share from 21.2% to 22.3%. (For U.S. government data, click here. Click on table H-2, "All Races.")If you expand the top 5% to the top 7%-8%, the limited nature of the beneficiaries becomes even more obvious.

***In Latin America drugs have been used for at least 5,000 years. (Historia de América Andina, Luís Guillermo Lumbreras, Editor, Universidad Simón Bolívar, Quito, Ecuador, 1999. Volume 1: "Las Sociedades Aborígenes," p.150). I wish anybody seeking to control cocaine and narcotics via laws and police busts the very best of luck.

. A man doesn't get in a situation like this every day. -- George Bailey, It`s A Wonderful Life --

Part 1 of this 5-part series discussed how America listened to the chaos whisperer. Result: Economic Crises I and II -- the 1980s S&L collapse and the 2007-8 world recession.Part 2 examined how house flipping generates inflation and corruption. The Surf Nazi School of Economics is the ideological representative of the chaos whisperer in both practice and -- to the extent there is one -- theory.

Part 3 looks into a heretofore unaddressed topic ...

We are inundated in songs, novels, TV shows and movies about drug trafficking. For that matter, even prima facie boring topics such as meatpacking (The Jungle), railroads (The Octopus), Wall Street ("Wall Street") and large farms (The Grapes of Wrath) have been dramatized.

To date, the entertainment industry has studiously stirred clear of house flipping. As for the mass media, a total disregard is to be expected, given the tycoons who own them and the role house flipping plays in their Fourth Reich ruling America today (see this blog, The Big Movida: The Third American Revolution, Chapter 13).

But there is another reason for the resounding silence. The house flipper´s inner essence: he surfs obsessively, unconsciously; he is driven rather than a driver. Indeed, he is more a function than a person. House flippers can be real estate offices, insurance companies, stock broker firms, S&Ls, banks, you name it. Such an unfixed, blurred persona is hard to place in the prevailing dramaturgy of our times: professional wrestling.Let´s break the American media taboo. Let´s turn the spotlight on a house trafficking profiteer who materialized in my town.

* * *

Am I talking too much? -- George Bailey --

"Hiya, Tom!"

His outstretched hand was almost as big as his Texas cheerleader smile.

Strange thing about Bob. His name is a Palindrome, i.e., a word that is spelled the same way backwards and forwards. Lon Nol, Cambodian leader 1970-75, is another Palindrome. Corrupt, incompetent, he ushered in Pol Pot. Bob worked out in the same gym I did. Somebody told him I was the chief aide to the Majority Floor Leader in the House of Representatives. After a few days in that position, you learn that anybody who is there on a social call is not there on a social call.

I took in Bob`s ever-present grey wind breaker; every orifice was closed and then some. After the standard 20 seconds of de rigueur small talk, I cut to the chase:

"What can I do you out of?" The question/remark was intended to suit the circumstances: absurd/obvious.

Bob told me he lived in X, a wealthy suburb of my town. Wealthy is a euphemism; movie stars were buying houses there. And houses were the issue.

State law required counties to reevaluate property every 10 years. The re-evaluation of 1980 had just been published. The wonderful news for Bob: due to house flipping, values in Suburb X had doubled not just once but three times since 1970.

The terrible news: property taxes had gone up accordingly.

Bob came to see me as the representative of the Suburb X home owners association. He wanted to change state law so that they would not have to pay the new and improved taxes.

I know what you are thinking, Dear Reader. But Bob´s interest was not self-interest -- oh no, perish the thought.

We have all heard the expression crocodile tears. I must admit I never actually saw any until Bob launched into a prepackaged diatribe about the "poor" ethnic minority group in Suburb X who would be "devastated" by the higher taxes. "Unfair" -- property that had been in their families for centuries would have to be sold. "Unfair" -- their property would be put on the chopping block quickly, hence at bargain basement prices. "Unfair" -- families ruined. "Unfair" -- it was not the minority group´s fault that movie stars were moving in. In fact -- "unfair" -- the minority group had made repairs/improvements but nothing out of the ordinary to cause the ruinous and ridiculous rise in property values. "Unfair" -- an entire subculture wiped out. "Unfair" -- how could we it stand there and let such a thing happen?

"Unfair" -- Bob was an amateur, but a professional amateur. I knew more about him than I let on. A retired Pentagon employee, he had made his money the hard way: he married it. His wife was one of the biggest realtors in the state. Mary´s hand was in the till for 3% of her listings which abounded in Suburb X.

Thanks to his wife, Bob was a newly minted oligarch. He accepted his role with the all-consuming zeal of a recent convert. A key aspect of that role is to be an erstwhile practitioner of the oligarchy´s favorite game: Heads we win; tails you lose. In this case, all the advantages without a single disadvantage of skyrocketing property values.

Backwards and forwards, coming and going: such is the bubbling core of surf Nazi economics -- the immediate manifestation of the chaos whisperer.I told Bob to see his state representative and talk it over, that there was nothing the House Majority Floor Leader would say or do until an actual bill was dropped in the hopper.

Bob briskly thanked me. Gone were the crocodile tears, the Texas cheerleader smile. He shot out the door as if he didn´t have a second to lose. And, in truth, he didn´t: conquest can´t wait.*

I went next door and met with Bob´s representative who was also the Democratic Party Whip. No need to explain what a Whip does. He is a member of the House leadership, right behind the Majority Floor Leader.He and I agreed that the minority group would be unfairly hurt by the new, mind-wobbling tax rates. Property rich but cash poor, they would be deftly and swiftly despoiled of their holdings. Bob´s wife would be the All American, George Bailey-inspired facilitator of that entirely legal robbery.

Following our discussion, the Whip wanted to sponsor corrective legislation. I sent a note to a bill draftsman:

Property held over X period of time (many years) which increased in value greater than X percentage (very high) in a decade would pay taxes at the old rate plus a small X percentage increase until the property was sold, at which time the unpaid higher taxes would be collected.

The Xs all had numbers, but they were not final. They would be debated and replaced by the legislative process.

* * *

My initial problem with the Palindrome Bobs and Megabucks Maries of this world is simple: they don´t know what they are doing.So, what are they doing?Coming soon: "The Chaos Whisperer. Part 4: The Political Economy of House Flipping."_______________*Bob`s hasty departure is explained not only by his not so hidden agenda but also by the walled, gated and guarded community where he lived. "The law of power never has the patience to await complete control of the world. It must fix the boundaries, without delay, of the territory where it holds sway, even if it means surrounding it with barbed wire and observation towers." Albert Camus, The Rebel, p. 24.

. I wish I had a million dollars ... Hot dog! -- George Bailey, It´s A Wonderful Life --

George Bailey, J.C. booster baby and lender of first resort, most popular in my (high school year) book -- a cog in the wheel of America´s economic ruin?

What an awful thing to think! It´s on a par with suggesting that All American hero Lance Armstrong used drugs.

Part 1 of this 5-part series discussed how America gave free reign to the chaos whisperer -- and nearly plunged the world into a second Dark Ages.To be sure, no one thing caused Economic Crises I and II -- the 1980s S&L collapse and the 2007-8 worldwide recession. But neither crisis could have occurred without the chaos whisperer.The destructive consequences of house trafficking, or flipping, go far beyond anything drug trafficking has conjured up. They also go beyond Crises I and II.

* * *

I lived for years in Mexico and Colombia. I know it will come as a shock to American readers but 99% of the people in both countries go to their work places, schools and homes without being accosted by a single narcotraficante or seeing one bullet-riddled corpse.

To the contrary, house flipping hits everyone. You can´t leave home -- or stay home -- without it.

The reason for flipping´s omnipresence is simple. The price of property cannot rise without raising prices in general.

In 1981, in my town you could rent a decent condo for $220 a month. I did it. In 1989, when I moved out, my rent had risen to $350. In 1990, a countywide real estate reevaluation took place. Due to an orgy of house flipping, values soared. The rent for the condo jumped to ... $1,100 a month. Had I stayed, what do you think I would have done to the prices I charged for my services?

I never met the new occupant. Whoever he was, he paid every day for Merrill-Lynch mind candy. Like pornography, it mostly exists in the eye of the beholder.The Bigger Fool game is the house flipper´s version of economic development. It is amazing how many otherwise sensible people play, or at least play along with it. We call it the Surf Nazi School of Economics. It is the blood and marrow of the chaos whisperer. Its adepts are everywhere; the President´s Council of Economic Advisers and Ivy League universities are loaded with them. Priests without faith, doctors without intuition -- mystifiers mystified -- they worship at the tomb of The Unknown Consumer.

House Flipping 101 What do you want? You want the moon? Just say the word and I'll throw a lasso around it and pull it down. -- George Bailey --I buy a house for $30 K and sell it to you for $60 K. As I watch you sign the papers I think, "God -- what a fool!" However, you sell the same property a short time later for $120 K. It´s your turn to smile, inwardly of course: "God -- what a fool!" But wait -- your buyer soon sells the house for $240 K. Guess what he is thinking.

Unbelievable? The above case is not hypothetical. A realtor friend in my town told me he sold the same house 3 times in less than 10 years. Each time the price doubled. Free money -- hot dog!How high is high? How low is low? With insane answers and obscene profits blowing in the wind, the locals could not sit for long on the sidelines. A group of realtors formed a cartel and bought a patch of hog`s back land infested with rattlesnakes and scorpions. The property´s physical location matched its worth: next to nothing.

They carved it up into lots. Cartel member 1 sold a lot to member 2 for $5,000. Number 2 then sold the same lot to Number 3 for $10,000, who a short time later sold it to Number 4 for $20,000. I hope you get the picture because not everybody did. Visions of sugarplums danced in the heads of out-of-staters who heeded the siren call, "Come on down! The Price is right!"

Actually, the price was wrong. But surf nazi economics doesn´t make that distinction.

The shark feeding frenzy described above is impossible where house flipping does not occur.

"All is foam," pronounced Comte de Lautréamont,* 1800s poet and precursor to post modernism. There isn´t a stock market investor alive who hasn´t heard the expression, "The market is frothy." Imagine a market that keeps on frothing for 30 years and you get an idea of what was happening in my town.

Lesson learned: the natural inclination of house flipping is as endless as man´s propensity to plunder. If you know where the upper limit is, please let me know. You and I will split the Nobel Peace Prize.

The ultimate top aside, there are limits, both endogenous and exogenous, to house flipping.

(i) Bubbles formed by house trafficking eventually burst for the same reason chain letters stop. If a chain letter functioned the way it is "supposed" to, you who started the letter would be sitting quietly at home one afternoon when the doorbell would ring. Fleets of trucks would deliver millions of letters from Mozambique, India, Russia, France, Costa Rica, China, Brazil -- all demanding a free bottle of booze (or whatever). Talk about a comeback: your chain letter would have made it around the world.

Conclusion: if a chain letter really worked, there would be no reason to do it.Its success is predicated on its failure.

The same is true for house flipping. If everybody won, nobody would do it. In my town a family who sold the house Grandpa built immediately discovered something: the handsome profit the house flipper handed them wasn´t so handsome. The catch: they still had to live someplace. On expressing their worry, the flipper smiled reassuringly: "No problem." He took out his list of offerings which, to the family´s horror, were hyper expensive, postage stamp-sized condos with zero charm -- unlike Grandpa`s house. It was the same story wherever they turned.

In macro-economic terms, not a single penny of real value was ever directly created by house flipping. The reason is that what is gained on one side is lost on the other. Net addition to the economy: zero. But surf Nazi economics doesn´t make that distinction.

I couldn't face being cooped up for the rest of my life in a shabby little office ...Oh, I'm sorry Pop, I didn't mean that, but this business of nickels and dimes and spending all your life trying to figure out how to save three cents on a length of pipe ... I'd go crazy. I want to do something big and something important. -- George Bailey --

(ii) The second endogenous limit to house flipping is well known.

House flippers are true seekers -- not of truth or beauty, but higher rates of profit. Places like my town which "catch on" offer them something big -- way beyond Pop´s most fevered dreams.

The very influx of house flippers, however, causes the rate of profit to fall. In 1776, Adam Smith famously observed that the “diminution of profit is the natural effect of its prosperity”:

"As capitals increase in any country, the profits which can be made by employing them necessarily diminish. It becomes gradually more and more difficult to find within that country a profitable method of employing any new capital. There arises in consequence a competition between different capitals, the owner of one endeavoring to get possession of that employment which is occupied by another. But upon most occasions he can hope to jostle that other out of this employment by no other means but by dealing upon more reasonable terms. He must not only sell what he deals in somewhat cheaper, but in order to get it to sell, he must sometimes, too, buy it dearer."**

And so, the flippers move on to greener pastures, leaving the Bigger Fool who bought late holding the bag. P.S. Early flippers clean up, but never their messes. In my town´s vernacular, they piss and run.

(iii) Often, something exogenous to the house flipping game stops it.

In my town, it was water.Most of our water came from a subterranean aquifer replenished by mountain snow packs. With scads of newcomers digging their own wells -- a practice once tightly regulated -- and global warming reducing the snow packs, the aguifer began to shrink. The first sign something was wrong appeared in 1975. Restaurants didn´t serve water unless you asked for it. The second sign appeared not long thereafter. A friend told me he was the first person in my town to lose money on a house.

Back in the 1960s, everybody was aware of looming water scarcities. However, nothing was done to stop them because house flipping megabucks seized control and overrode strenuous scientific objections and rigorous city regulations. The flippers gave new meaning to an old expression: You can´t beat the house.

Along with the water, the news leaked out. Newcomer arrivals slowed; the housing market dried up. Today, condos bought for $500 K at the high water mark are selling for $300 K, and there are no buyers. The Bigger Fool looks at his monthly mortgage payment, twiddles his thumbs; he knows he will not recover his money anytime soon, if ever. He looks again and again at the hard numbers, downs another Tums. Good ol´ George Bailey -- house flipper? No way! But, gosh a-mighties, it´s dealer´s choice. Oh my ... read ´em and weep.

My town continues to lie about its water scarcity. Lying is part and parcel of house flipping. Shakespeare caught the drift:

We came into the world like brother and brother; And now let´s go hand in hand, not one before another. -- "The Comedy of Errors," Act V, Scene 1 --

As Part 4 will show, moral turpitude and house flipping aren´t the only couple in which the chaperon turns out to be ... each other.

* * *

I need to elaborate on the house flipping-induced inflation mentioned earlier. It is qualitatively different from the inflation of yesteryear discussed in economics textbooks.

They say (i) there is an exception to every rule. If that is true then there must be an exception to the rule just enunciated, i.e., there is an exception to every rule.

They also say (ii) what goes up must come down.

My town was singular in both respects. (i) Without exception, all prices rose during the house flipping frenzy and (ii) never came down. Which means, the "little people," who never had money to flip houses, pay the tab for the morning-after damage every time they buy a carton of milk.

If House flipping is the whisperer of chaos in a not-so-distant future, it is the whisperer of inflation in the here and now.

I want to live again!-- George Bailey --

In areas hit by house flipping, does economic inflation reflect ego inflation?

If so, let me know if you know the stopping point. You and I will split the Nobel Prize for Economics.A man who should know about such things, Colombian drug kingpin Pablo Escobar, reportedly declared that anything that is dangerous is convertible into money.

Drug traffickers take tremendous personal physical risks: murder and torture by rival traffickers and long imprisonment by authorities. Exorbitant danger is factored into their exorbitant prices and profits -- but that exorbitant danger also tends to limit the number of drug traffickers.

House flipping, on the other hand, has no corporal limit. It is El Dorado without the hostile Indians. To my knowledge not a single perpetrator has ever been cussed out, much less killed. The Bigger Fool doesn´t pack a gun, although there are signs that situation may be changing.

Because there is no corporal danger and because house flippers are accustomed to taking zero financial risk -- usually a Bigger Fool is close by, if not already lined up -- not even the sky is the limit. No wonder surf Nazi economics are in.

Otherwise stated, there is an inexhaustible pool of Bigger Fools ... until the pool dries up. Speaking of inexhaustible:

No doubt whatsoever -- drug trafficking corrupts trainloads of public officials. But so does house flipping.

You want a real life example?

The commissioners of my town hired me to design their electoral districts. One of them confided over upstream beer and gourmet pizza that he could pick up a $250 K condo for free. All he had to do was vote to reduce the tightly regulated Historic District by 30 feet.***

Corruption of that magnitude only exists where millions of dollars are in play. House flipping is ready, willing and able to supply them. Part 4 reveals where a huge chunk of the megabucks comes from. DEA and Drug Watch International, take note.